Market Advisor

Benchmarks for the ethanol era

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Having conducted Integrated Resource Management (IRM) cash-flow analyses for individual ranchers for 20+ years, I fully understand a ranch must cash flow every year. Such cash-flow monitoring is projected to take on even more economic significance in the next few years as the cattle industry adjusts to the emerging biofuels era.

Since net-cash-flow is one of my early “red-flag” management indicators (see April 2007 “Market Advisor”), I am publishing my first-ever, cash-flow benchmarks for beef-cow producers.

Table 1 presents my cash-flow benchmarks generated from the average data analyzed for my 2005 IRM clients. These IRM benchmark herds averaged 476 cows, but vary from 166 to 1,278 cows. Females exposed to the bulls in the previous breeding season averaged 524 head, while the Standardized Performance Analysis (SPA)-adjusted females exposed, adjusted for sales and purchases of bred animals during the year, averaged 519 head.

Pregnancy rate of exposed females averaged 92%, and calving rate averaged 91%. Calf death loss as a percent of the live calves born averaged 7% (I suggest a goal of 5%), and the percent calf crop averaged 86% (I suggest a goal of 90%; that is, 90% of the females exposed weaning a live calf).

The second section of Table 1 lists the production parameters measured on these IRM herds. Average weaning weights were 534 lbs., while calf weight per day of age (weaning weight divided by days of age at weaning) averaged 2.87 lbs. This latter measure indicates a calf's growthiness — the higher the weight per day of age, the more growthy the calf.

Statistically, the most powerful production measure with respect to profit that I've identified for a beef cow herd is the pounds of calf weaned per female exposed. It measures what happens in that herd from bull turnout date through weaning. These benchmark herds averaged 406 lbs. of weaned calf per female exposed.

The bottom section in Table 1 provides some economic and marketing measures of these benchmark herds. Total capital investment in the beef cow herd, beef-cow equipment and facilities, and pasture land averaged $4,179/cow, but remember, you don't need to own cows and/or pasture to run cows.

These benchmark herds' debt load per cow averaged $935. Year 2005 was a year of record calf prices, and these ranchers averaged $129 for weaned calves, with the highest price at $167 for some early-weaned, lightweight calves. The heifer price differential averaged -$5.89 from steer calf prices received, ranging from $0 to -$12. As this was a year of high heifer-replacement demand, ranchers producing heifers with breeding potential experienced little or no price discount for heifer calves.

Price slides and the value of added weaning weight go together. Price slides for these benchmark herds averaged -$11/cwt. and generated a value of added weight of $79/cwt. This implies that added weaning weight, on average, was worth 79¢ per added lb. at weaning time. Ranchers creep-feeding their calves had to put on the added pounds for less than 79¢/lb. to make creep feeding pay.

Finally, Table 1's bottom four lines summarize the economic returns for these herds. Accrual-adjusted economic income per cow averaged $600/cow. Economic production costs average $487/cow, resulting in an economic value-added of $113/cow.

These herds had an average unit cost of producing a hundredweight of calf (UCOP) of $105/cwt. of calf produced. This high UCOP isn't a serious problem when calf prices are high, as in 2005, but could be in the emerging biofuels era. Time will tell if my current concern proves correct.

Cash-flow benchmarks

Cash-flow analysis summarizes all the cash flowing into — and out of — the beef cow profit center. It's similar to running a checkbook just for the beef cows.

Table 2 presents my cash-flow benchmarks for ranchers based on the 2005 herds I analyzed. For example, the gross cash income for these benchmark herds averaged $647/cow with a range of $301 to $1,249. Most of the range difference was determined by the selling of bred females. Year 2005 was the year in the current cattle cycle to sell bred females — maybe even the total breeding herd!

The cash costs of feeding the cow herd averaged $163/cow with a top range of $286/cow. Pasture cash costs averaged $48/cow up to $94. (Most of the pasture cash costs were on owned pasture.) Winter feed costs were based on cash costs of producing the ranch-raised feeds and averaged $115/cow but ranged up to $200/cow.

Livestock costs are listed in the second section of Table 2. Vet and medicine averaged $18/cow ($4-$29 range). Trucking averaged $4/cow ($0 to $19 range). Fuel costs averaged $13/cow (farming fuel costs are in the raised feed costs) with a range of $7 to $28.

Utilities averaged $10/cow, artificial-insemination (AI) expense averaged $7/cow (not all herds AI), livestock supplies averaged $26/cow, marketing was $2/cow, breeding (bull purchases only) was $17/cow, and hired labor was $50/cow with a range of $0 to $159. Total livestock costs averaged $148/cow, ranging from $46 to $340.

The fixed cash ownership costs associated with capital investment in the beef cow herd, beef-cow equipment and facilities, and pastureland averaged $38/cow and ranged from $3 to $94/cow. The fixed cash costs were dominated by debt-interest payment and principle payments. Interest and principle payments together make up the debt-service costs. Debt service averaged $95/cow on these benchmark herds with a range of $0 to $297.

Total cash cost of production on these benchmark herds averaged $445/cow with a range of $286 to $720. Net-cash-flow averaged $199/cow with a range of -$75 to $583. (This high number was generated by selling bred females in 2005.) The unit cash costs of producing a cwt. of calf (UCCOP) averaged $109 and ranged from $63 to $157/cwt. of calf.

Again, my concern is ranchers appear to be entering the emerging biofuels era with high UCCOP. North Dakota Farm Business Management Summaries indicate that in 2006, gross income declined and production expenses increased. If calf prices should suffer even more in the biofuels era, net-cash-flow needs to be closely monitored by beef-cow producers.

Should calf prices decrease in the emerging biofuels era, a negative net-cash-flow could be the first “red flag” generated by beef-cow producers. Every ranch manager should give added management attention to net-cash-flow monitoring over the next few years.

I've included a “your herd” column in Tables 1 and 2 for readers to benchmark their herd's data; use this powerful management tool to identify your herd's cash flow strengths and weaknesses. Then capitalize on those strengths and apply your management skills to eliminate the weaknesses.

It's best to do this at the beginning of this emerging biofuels era as a preventive measure, rather than after a net-cash-flow “red-flag” has popped up for your beef cow herd.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or harlan.hughes@gte.net.

Table 1. Production/marketing benchmarks (2005 herd data)
Item Average Low High Your herd
Reproductive performance
Jan 1, 2005 beef cow inventory number 476 166 1,278
Females exposed previous season 524 191 1,444
SPA-adjusted females exposed 519 178 1,444
Pregnancy rate 92% 88% 100%
Calving rate 91% 87% 100%
Calf death loss 7% 0% 15%
Percent calf crop weaned 86% 80% 93%
Production
Average weaned calf age in months 6.23 4.63 7.5
Average weaning weight 534 lbs. 378 lbs. 703 lbs.
Steer average weaning weight 546 lbs. 392 lbs. 716 lbs.
Heifer average weaning weight 515 lbs. 365 lbs. 689 lbs.
Total pounds of calf produced 227,171 87,058 553,227
Calf weight/day of age 2.87 lbs. 2.47 lbs. 3.22 lbs.
Pounds weaned/female exposed 406 lbs. 334 lbs. 650 lbs.
Economic/market indicators
Total capital investment/cow $4,179 $972 $7,376
Total debt/cow $935 $0 $3,768
Steer calf price received ($/cwt.) $129 xxx $167
Heifer price differential -$5.89 $0 -$12.00
Price slide at weaning weight -$11/cwt. -$21/cwt. $0/cwt.
Value of added weight at weaning $79/cwt. $55/cwt. $115/cwt.
Accrual-adjusted economic income/cow $600 $325 $775
Total economic production cost/cow $487 $332 $845
Economic value added/cow $113 -$168 $320
Unit cost of producing cwt. of calf $105 $65 $157
Table 2: Cash-Flow Benchmarks (2005 Herd Data)
Item Average Low High Your herd
Gross cash income/cow $647 $301 $1,249
Feed costs:
Summer $48 xxx $94
Winter $115 $58 $200
Total feed costs $163 xxx $286
Livestock costs:
Vet & medicine $18 $4 $29
Trucking $4 $0 $19
Fuel $13 $7 $28
Utilities $10 $0 $46
A.I. expense $7 $0 $41
Supplies & lease payment $26 $0 $87
Marketing $2 $0 $10
Breeding (b ull purchase) $17 $4 $26
Hired labor $50 $0 $159
Total livestock expenses $148 $46 $340
Interest on feed and livestock expenses $5 $0 $14
Fixed Expenses: Buildings and facilities, cows and heifers $38 $3 $94
Debt interest $50 $0 $189
Debt principle $45 $0 $108
Total cash costs of production $445 $286 $720
Net-cash-flow (before family-living draw) $199 $75 $583
Family-living draw $50 $0 $117
Net-cash income before taxes $149 $75 $583
Cash costs of producing cwt. of calf $109 $63 $157
What's Market Advisor?

Harlan Hughes has spent a professional lifetime helping U.S. beef producers better manage the business end of their beef cow operations.

Contributors

Harlan Hughes

Harlan Hughes is a North Dakota State University professor emeritus and author of the monthly "Market Advisor" column that appears in BEEF magazine. He also consults and lectures widely,...

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